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Wednesday, September 20, 2006

Rockwell gives an excellent summary of how an economy characterized by inflation differs from an economy in which deflation is the norm. Here is an excerpt: For years, Fed officials and others have warned about the grave dangers associated with deflation. Now, we see this very thing taking place in clothing, technology, and other goods that you can buy at large discount stores.

What is the result? It's been a wonderful blessing to consumers. Indeed, it has been our saving grace in times of soaring prices for education, energy, houses, and medical care. If some prices had not fallen, the American economy would be in much worse shape.

Does deflation make business more difficult? Most certainly. Retailers can't hold on to inventory as long as they use to. The maintenance of profitability involves relentless innovation, keen-eyed cost watching and cutting, constant attention to the competition. In a deflationary environment, consumers expect outstanding services, a big bang for their buck, and slavish service. They are ready to defect to the competition over the slightest thing.

All these are facts of life in a deflationary environment. My only question is: why we should regret this? If we seek an economy in which waste is held to a minimum, the people are served, the consumer is king, business operates with top efficiency and innovation, this is all to the good. Deflation never harmed anyone except those who are not willing to work hard for their profits. There is also an MP3 audio file of this speech. To hear it, just click the link that's at the top of the page.